Here is from a recent note from BofA Merill Lynch:

“One of the remarkable things in the last several years is how QE critics have “hijacked” the inflation debate. Every time the Fed announces a new QE program or inflation ticks up a bit, critics warn of a potential surge of inflation. Sure enough, the QE3 announcement in September caused a knee-jerk jump in inflation breakevens, warnings of surging commodity prices and eventual broad-based inflation. All of this has the Fed on the defensive: their directive talks about what they will do if inflation is too high, but is mute on what they will do if inflation is too low. Despite the dire warnings, we believe there is a greater risk of unwanted disinflation than of unwanted inflation. This, along with the fiscal shock, is a good reason to fade the bond market sell-off. 

Cooling core, halting headline 

After bumping up in 2011, almost every broad-based measure of inflation is falling. The only indicator that is not dropping increasingly below the Fed’s 2% target is the median CPI, which has held steady at just above 2% for the last two years. Perhaps most notable, the Fed’s favorite gauge of underlying inflation, the core PCE deflator, has risen at only a 0.7% annual rate over the last six months. 

While much of the drop is temporary, headline inflation has been even weaker. In the last three months, the headline CPI, PCE deflator and PPI have all been in negative territory. Over the last 12 months, all are rising at about 1.5%. So far, QE3′s inflationary bark is a lot worse than its bite. 

Fundamentally weak 

This is not a fluke: almost all of the underlying determinants of inflation point to weakness.” 

Source: BofA ML

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5 Responses to Merrill Lynch: Worried about US inflation? Think again…

  1. gringo says:

    Why would ML tell its customers that inflation is coming. So they can get crushed on the billions of treasuries they are long on their books? Please. You print money, you debase the currency, its not rocket science and for ML to point to current inflation trends in support of their arguments is ludicrous. The effects of the various QEs will rear their ugly heads down the road.

  2. frank stein says:

    Down the road is still quite down the road. Deleveraging is still progressing in the US even with all QEs. Just recently housing prices started to bottom, for instance. In Brazil the credit inflated bubble keeps being inflated further.

  3. frank stein says:

    Gringo may be an authority in Economics but there is guy named Paul who thinks Ben has not printed enough money. Another guy named Ray appears to think Ben is doing a great job.

  4. Americano says:

    I think the US is going to end up being destroyed by some very bad people that have taken over the US Government.

    Maybe that is their ultimate goal, bring the mighty USA to it’s knees.
    I wonder which country is behind this. Personally,I think it’s a small country that is behind this.

  5. jay says:

    ml didnt know they were broke.. let alone what tha f** is gonna happen next..

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